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Diamonds and precious metals for reduction of portfolio tail risk

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  • Massimiliano Barbi
  • Hélyette Geman
  • Silvia Romagnoli

Abstract

We study the performance of diamonds compared to gold and other precious metals in mitigating the tail risk of a diversified equity market portfolio over the period June 2007 to October 2018. Our results display a diversification benefit of some diamond indices, which also improve the portfolio reward-to-risk ratio. To corroborate this evidence, we study the dependence structure and tail dependence of diamonds and a broad equity market portfolio and compare it to the dependence obtained with gold and other precious metals. Results from fitting a bivariate copula show that the average left tail dependence reaches its minimum when diamonds are used. We also show that using shares of diamond-mining companies does not provide the same benefits.

Suggested Citation

  • Massimiliano Barbi & Hélyette Geman & Silvia Romagnoli, 2020. "Diamonds and precious metals for reduction of portfolio tail risk," Applied Economics, Taylor & Francis Journals, vol. 52(26), pages 2841-2861, May.
    • Handle: RePEc:taf:applec:v:52:y:2020:i:26:p:2841-2861
    DOI: 10.1080/00036846.2019.1696938
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    Cited by:

    1. Potrykus, Marcin, 2022. "Diamond investments – Is the market free from multiple price bubbles?," International Review of Financial Analysis, Elsevier, vol. 83(C).
    2. Hanif, Waqas & Areola Hernandez, Jose & Troster, Victor & Kang, Sang Hoon & Yoon, Seong-Min, 2022. "Nonlinear dependence and spillovers between cryptocurrency and global/regional equity markets," Pacific-Basin Finance Journal, Elsevier, vol. 74(C).
    3. Plastun, Alex & Bouri, Elie & Havrylina, Ahniia & Ji, Qiang, 2022. "Calendar anomalies in passion investments: Price patterns and profit opportunities," Research in International Business and Finance, Elsevier, vol. 61(C).

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